Lane Cove office delivers big return for fund manager

A Malaysian property investor has purchased a suburban office in Sydney’s north for $27.8 million, giving its vendor a return to investors of 140 per cent.

The property was purchased by Epic Doncaster, an investment vehicle owned by Malaysia’s 35th richest person, Ong Leong Huat.

The vendor, Melbourne-based property fund manager Quintessential Equity, acquired the property in April 2013 for $12.715 million.

At the time, the building’s occupancy was at 80 per cent. A subsequent upgrade has delivered near 100 per cent occupancy.

Quintessential Equity’s head of property, Russell Bullen, says the net passing income from the long-term tenancies, coupled with the significant enhancements made to the property since acquisition, made for an extremely attractive sale proposition.

“We put this asset on the market because we had executed on our strategy and believed it was prime for sale – it was almost fully leased to very strong covenants, delivering a net passing income close to $2.5 million per annum, the NABERS Energy rating had been increased by 2.5 stars due to successful energy efficiency initiatives, and significant building upgrades had been made,” Bullen says.

The building at 166 Epping Road, Lane Cove has three levels of office space and two levels of basement car parking for 236 cars.

The sale, negotiated by Knight Frank and CBRE, was made on a yield of nine per cent.

Quintessential Equity says the deal delivers an internal rate of return of around 50 per cent and a total return of around 140 per cent to investors.

Knight Frank’s head of Asian Capital Markets, Dominic Ong, says the location and the fact that it neighbours Meriton’s high density residential tower set for completion next year made it one of the most unique opportunities on the market.

“We expect offshore investors will continue to be strong buyers of North Shore property, particularly as yields in the Sydney CBD become tighter,” Ong says.

CBRE’s executive managing director, Scott Gray-Spencer, says the “massive amounts of stock withdrawal due to residential conversion” occurring in the area meant that well-located and high-yielding commercial investments like 166 Epping Road were highly sought after.